What is franchising?

• The franchisee pays an initial franchise or licence fee, which mainly covers the franchisor's costs for setting the franchisee up in business.
• The franchisee makes ongoing payments to the franchisor over the term of the franchise agreement. These fees can be calculated as a percentage of turnover, and/or as a mark-up on the goods or materials that the franchisor sells to the franchisee or as a fixed amount per month.
• Franchise agreements usually last for a minimum of five years. Renewal of the agreement should usually be straightforward, provided the terms of the agreement haven't been breached.

The effect on you

For many people, the chance to be their own boss is one of the main reasons they choose to become a franchisee. However, it is not a decision that you should take lightly. It demands hard work – you will have the freedom to run your own business, but you’ll also have the accompanying responsibilities, and that can cause a great deal of stress. You may have to invest your life savings or take out a loan against the security of your home. And if you have a family, you won’t be the only one who has to make sacrifices.

Are you physically able to cope?

The success of your business – particularly in the early years – will depend on your drive and ambition: so your health is important. It is unlikely that you could afford to pay someone to manage your business if you fall ill.

Although you will enjoy a certain amount of freedom, there will still be rules to obey. You will have to accept the rules of the franchisor and the disciplines of the franchise system. Your profits will depend on this.

Regular payments

You will have to make regular payments to your franchisor or buy products from them. This obligation will continue throughout the life of the agreement and you cannot arbitrarily decide not to pay for or buy products.

Ending the agreement

There may be restrictions imposed on you if you decide to leave the franchise. You are unlikely to be allowed to carry on trading under your own name in the same type of business from the same premises.

The first decision you need to take is what type of franchise business will suit you best. Although not essential, it helps if you have experience in the area you’re thinking of moving into. But you also need to consider the state of the market in your locality: is the market established, or in decline, or will you need to effectively create a new market from scratch?

Then there’s the very important question about what you can afford. Individual circumstances vary, but as a rule – and if you have some security – add up your savings and multiply by a factor of three: if you have £20,000, you should be able to finance a franchise with start-up costs of around £60,000.

Those start-up costs matter, too. We’re keen to make sure that they’re not prohibitive (which is why we’re investing £100m and offering a host of financial incentives), but it’s up to you to consider whether the initial fee (typically between £15,000 and £20,000) and continuing fees represent good value for money.

And remember, although many people dream of running their own business, the reality can be stressful and call for long hours. Just make sure you’re properly prepared.

Once you decide which franchise you want to buy, talk to one of our franchise relationship managers to discuss your business plans and make sure you have the financial package that’s right for you and your ambitions.